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Monday, August 3, 2009

SA: The case for including photovoltaics and biomass into Refit system

In March, the National Energy Regulator of South Africa (Nersa) announced and approved the landmark renewable-energy feed-in-tariff (Refit) guidelines, which included five renewable-energy technologies and drew praise from many ‘green lobbyists’ and potential investors.

Wind, small hydropower, landfill gas and concentrating solar power (CSP) were immediately included under Refit, which was described by many as a “bold step” and a powerful lever for stimulating investment, economic activity and employment in what many see as the future of the energy sector.

But two key technologies – biomass and photovoltaics – were not included, leaving some disappointed. But Nersa immediately promised to interrogate the case for the ‘other renewables’ and said that the extension of Refit was, indeed, possible within six months.

Climate change sustainable development solutions and policy planning firm Camco director Jonathan Curren, who has been working closely with the regulator, believes other technologies should be included in Refit.

Clarifying why they were excluded, Curren says that Refit was initially focused on priority technologies. The idea was to “kick off” Refit in a way that was more focused and less “complicated”.

“We need to get going, to build experience and get some technologies running,” he explains.

For the original tariff, Camco was commissioned by the regulator to conduct a ‘small’ study to see what regulatory framework was required to establish a feed-in tariff. As part of the mandate, the researchers had to use the then Department of Minerals and Energy’s (DME’s) 2004 economic study as the background for its cost modelling.

The DME study included five technologies: wind, landfill gas, small-scale hydropower, gas power generation, and pulp and paper generation. For Refit, pulp and paper and gas power generation had to be dropped, because they were already included in the national cogeneration programme. CSP was included in Refit because Eskom has done a lot of work on this, and it can be brought on line quickly. It was concluded that, once a potential feed-in tariff was available, alongside a tender process for the same energy technology, the tender process would collapse.

Curren notes that the key principle of the feed-in tariff is to focus on these priority technologies, which, Nersa believes, will add most value and for which it has a lot of data. Thereafter, the other technologies could be brought into play.

SUNNY SA LAGS

A key technology that many want included under Refit is solar photovoltaic (PV).

Solar technology began gaining traction when it was included in the first feed-in tariff, which was implemented in Japan in the early 1990s, followed by Germany in the late 1990s.

These two Refits were major market triggers and, worldwide, some 14,7 GW of solar PV was installed in 2008 alone.

According to the International Energy Association, solar PV will contribute significantly to the overall electricity supply leading up to 2050. Somewhat ironically, however, ‘sunny’ South Africa has been something of a laggard, despite recent power disruptions, owing to supply-side constraints.

Further, its initial solar focus is on large-scale CSP, rather than on solar PV, which has the potential to draw in far smaller market participants.

In Europe, by contrast, solar PV is playing a material role. The continent currently has 27 countries that provide feed-in tariffs for this technology.

The key benefits are that PV generates electricity from sunlight, there are no moving parts, it has reduced maintenance costs, and it lasts for 20 years. It is also a technology that can be used on a decentralised basis and can support both small and large installations.

Sharp Energy Solutions, which recently set up operations in South Africa for its solar PV technology, believes that the technology can make a contribution to meeting Africa’s and South Africa’s power needs.

“Solar PV is important, because it contributes to a sustainable green society which, in turn, contributes to the comfort of people. It can also allow us to cut carbon dioxide emissions tremendously and protect the environment,” says Sharp Energy Solutions Europe vice-president Peter Thiele.

“We think there will be a large demand for solar PV in the future, and people need to know about the benefits it provides. Climate change is happening, and we are depending too much on gas and coal – it is time to develop the right alternatives.”

GROWING INTEREST

According to Curren, South Africa is starting to take green issues very seriously. “It is almost a green revolution going on down here.”

Traditionally, the African market has focused its solar PV mainly on the off-grid market, because it is the best cost-saving solution.

There has not been much interest in connecting solar PV to the grid, as it has been largely believed that building coal-fired power stations is an easier and cheaper option.

Much solar growth has taken place in Europe and the US and, during the last year, there has been a 110% increase in the solar PV market internationally. In Spain, the solar PV market has grown by 285% in the last year, all because the right regulatory mechanisms have been put in place.

Further, the cost of solar PV has decreased by 30% in the last quarter.

“It is expensive when compared with coal in terms of cost alone, but there are a lot of other drivers that should be taken into account as well – we need to grow the market to drive costs down,” he adds.

It is estimated that solar PV would only become a viable investment opportunity at around R2,95/kWh, which is substantially more expensive than other renewables included under Refit and massively higher than the average of 22c/kWh that is currently received by Eskom.

Under South Africa’s Refit, wind power will receive R1,25/kWh, small hydro R0,94/kWh and landfill gas R0,90/kWh; CSP has been granted R2,10/kWh.

Still, its key advantage lies in the opportunity it appears to present for smaller market participants and even households in a sector otherwise dominated by higher upfront capital costs and the need for a high level of technical competence.

FROM THE EARTH

Many people are excited about Refit, but Curren explains that it is “just not there yet” and that a lot of challenges will still need to be faced. One of the challenges is including the obvious opportunity that is presented by energy from waste, specifically biomass.

While biomass has always been identified as having energy opportunities, only landfill gas has been included in the tariff.

The sugar industry has been looking into the potential of power generation for years, but has never been able to get the right price. Some sugar companies have sold to small green electricity companies, but they have been left out of the tariff because the national cogeneration programme process was already under way.

“The national cogeneration programme did not meet its targets with the tendering system. Prices were pushed down, but it just didn’t end up being a competitive option,” Curren explains.

But, he says, there is “definitely” an opportunity to bring other biomass technologies back into Refit. “I do not see any reason why they should be left out. As long as the price is right, they can be brought in.”

It is also understood that the regulator is keen on bringing other technologies on line, but it needs to come to grips with acceptable costs and prices.

A major benefit is that, unlike some other renewables, waste-to-energy plants can supply power 365 days a year, 24 hours a day.

“Waste-to-energy plants generally operate in or near an urban area, easing transmission to the customer. This power is sold as baseload electricity. There is a constant need for trash disposal, and an equally constant and reliable energy generation. Waste-to-energy promotes energy diversity, while helping cities meet the challenge of trash disposal.

“Waste-to-energy plants may have a significant cost advantage over traditional power options, as the operator may receive revenue for receiving waste as an alternative to the cost of disposing of waste in a landfill – typically referred to as a ‘tipping fee’ – versus having to pay for the cost of fuel; fuel cost can account for as much as 45% of the cost to produce electricity in a coal-powered plant, and 75% or more of the cost in a natural-gas-powered plant.”

Potgieter explains that the company’s pyrolysis plants can accommodate any waste stream – from sewage waste, wood waste and cow dung to medical waste and organic waste. “As long as the waste stream has a calorific value, we can do it.”

However, although the company manufactures these plants locally, it exports rather than builds for local use.

“It is going to take a bit of time for South Africa to catch up with international standards and technology, and, as such, South Africa is lagging behind Europe in the production of green energy or waste-to-energy,” he adds.

LOCKING INTO THE GRID

Many biomass plants can be run independently of the national power grid, which means some projects are proceeding regardless of Refit inclusion.

Observers concur that a Refit would be key to truly mobilising investment around biomass and other waste-to-energy solutions.

Currently, the tariff offered for grid connectivity is even lower than the current Eskom tariff.

“There is no way you will get a return on investment,” Potgieter avers. “We have, therefore, been disappointed with South Africa’s approach thus far.”

This said, Potgieter believes that there is a big future for biomass in South Africa, with new operations lessening the burden on Eskom, not only in light of prevailing power-supply shortages, but also in assisting in reducing greenhouse-gas emissions.

THE NEXT STEP

Still, many advocates of both biomass energy and solar PV believe that Nersa is at least alive to their plight.

“Large-scale projects are fine for Refit, and there is a good chance that large-scale solar PV will be on Refit before the end of the year,” Curren says, adding that it may even be decided that small-scale solar PV, under a certain capacity, might not even require a licence.

Given Nersa’s commitment, it is hoped that, by September, South Africa should have more visibility on the matter and other renewable-energy technologies are made eligible for Refit.

“We can even look forward to technologies such as hydropower and wave power, which might come on line in future, once we have established other less expensive technologies.

“Gas power generation and pulp and paper should be present in the next feed-in-tariff announcement – the data is there, the interest is there and the information is there. We just have to work with the sector and identify costs,” Curren concludes.